Prices of Diesel, LPG and Kerosene unlikely to be increased

NEW DELHI: The government is unlikely to raise prices of diesel, cooking gas and kerosene in the near future for fear of opposition across the political spectrum. Speaking on condition of anonymity, a cabinet minister and a senior official in the oil ministry said while the government is keen to raise the price of the three fuels under price control, such a decision is not imminent as it will require extensive discussions with political parties. Further, the ruling Congress is wary of the fallout of such a move, particularly an increase in diesel prices, at a time food inflation is above 10%, the minister said.

Rating agencies and market participants are keen that the government cut subsidies in order to reduce fiscal deficit, which the budget projects at 5.9% of GDP. They will be disappointed if there is a prolonged delay in raising prices of the three fuels as there have been widespread expectations of a hike in diesel and LPG prices, regarded by investors as a symbol of the government's commitment to reforms, since Prime Minister Manmohan Singh took over the finance portfolio.

The oil ministry official indicated that prices could not be increased before the election of the vice-president, which is on August 7. "Soon after that is the monsoon session of Parliament," the official said to illustrate the point that the government's hands are tied, at least in the short term. "Nothing stops us from raising prices when Parliament is in session, but we do not have numbers." "The most important reform is not allowing FDI in retail, but cutting subsidies on diesel, LPG and kerosene," the official added.

Congress has also expressed reservations over the wisdom of a hike in diesel prices given the high rate of inflation, a cabinet minister said. "There is little chance of pushing through a diesel price hike when inflation is still ruling over 7%, with food inflation holding up in double digits," the cabinet minister said.

Food prices have seen a steep-to-moderate increase over the past few weeks, with vegetable prices increasing as much as 25-30% because of the poor monsoon. Sugar prices have risen 3-4 per kg while there has been a moderate hike in prices of foodgrain. A hike in diesel prices, which could make food items costlier in the short term, is a "clear no no" at this point, he said.

The oil ministry official said the government would start talking to its political allies during the monsoon session starting August 8. "There is absolute consensus that prices of diesel, cooking gas and even kerosene should be raised within the government," the official added.

According to officials with direct knowledge of the matter, the government wants to raise diesel prices by Rs 5 a litre, cooking gas by Rs 100 per cylinder, and kerosene by Rs 2 a litre.

Prices of diesel, cooking gas and kerosene prices have been frozen since June 25, 2011. Oil ministry officials said an eventual decision could be taken by the CCEA as an EGoM tasked with raising fuel prices was disbanded after Pranab Mukherjee quit to contest the presidential election.

A source in the PMO confirmed that while fiscal deficit and the increasing subsidy bill is a concern, the government may not be ready to push through a diesel price hike - a measure recommended by a panel headed by Chief Economic Advisor Kaushik Basu - right away. Reducing subsidies on cooking gas by limiting the number of subsidised LPG cylinders a consumer gets in a year is on the agenda, the PMO source said.

Diesel prices have a large impact on the economy as it is the main transportation fuel in road transport. Oil companies have made a case for a correction in diesel prices as they claim that total losses caused by selling the fuel below cost will exceed Rs 1,50,000 crore in 2012-13 . The loss figure will rise if the current global scenario continues, a top boss of one of the oil marketing companies said. India is highly dependent on imported crude oil to meet fuel requirements. The government faced flak from Opposition and allied parties when oilcos increased petrol prices by Rs 8 a litre, forcing them to roll back the price hike partially.